Fees and Interest: What You Don’t Know Could Hurt You

Imagine you're getting ready to pay your credit card bill, when you notice a list of fees stacked on top of your outstanding balance. This is an all too common scenario for many, but it doesn't have to be. It's important to get familiar with the types of fees and interests you will likely encounter not just on your credit card statement, but also for your loans and mortgage payments. 

Here are ways you may miss fees and interest and what to do about them:

Late Fees

  • What are they: This is the amount you are expected to pay for late payments on revolving credit – such as credit cards – or installment credit like student loans.
  • How they can sneak up on you: You may not realize or forget that you could be held responsible for late fees in case the creditor does not receive payments on time. These fees could cost up to $35 for credit payments or more for other credit lines, which could be tacked on to your next billing statement. If you are unable to pay the initial fee, more fees could follow. 
  • How to avoid them: Always read the fine print. Check with the terms and conditions of your loans, credit cards and other credit lines to make sure that they do not have late fees. Additionally, check to see how much you will be expected to pay in case you do not send your payment on time. To prevent late fees, consider setting calendar reminders about when to pay your bills, such as through your email service provider or through a budget management app. By knowing when your next bill is due you can plan your spending accordingly and stop late payments from damaging your credit score. 

Foreign Transaction Fees

  • What are they: While in a foreign country, travelers often find that they did not bring enough currency with them and then resort to relying on their credit card. This could result in charges in the form of foreign transaction fees, or the cost of making purchases abroad because the transaction is converted into your home currency. 
  • How they can speak up on you: As you are making your purchases, you may not check your credit card balances while you're off exploring new lands and sightseeing. It might be only be when you return and get your monthly credit card statement that you realize those foreign transaction fees add up fast. With these fees ranging between 2 to 3 percent of the total purchase and consumers often making multiple purchases while overseas, this could ruin any traveler's vacation.
  • How to avoid them: Once again, reviewing your credit card's terms will help prevent exorbitant foreign transaction fees. In the situation your credit card does not charge these fees, ask that the transaction is made in the local currency as opposed to your home currency, which could avert a currency-conversion fee. You should also keep records of all your purchases just in case you were charged a fee so you can make your case to dispute it later on. 

Capitalized/Compound Interests

  • What are they: While you are aware that you have to pay a fixed interest rate each month for loans and other credit obligations, you may not notice that your interest is also building interest. There are two kinds of interest you will have to pay: simple and compound interest. Known as capitalized or compound interest, this is the money that is accrued from both the simple interest and principal combined.
  • How they can sneak up on you: While you pay your loans or bills each month, compound interest could continue to accumulate and could cause you to put more money toward paying off the loan as time passes.
  • How to avoid them: Make two payments each month instead of one. For credit or loan obligations where you are expected to pay a set amount of money each month, consider splitting your payment in two. This could help reduce the amount of compound interest added each month and even help reduce your debt payments over the course of the life of the loan. 

Closing Fees

  • What are they: As you are approaching closing on a house, you will likely pay fees before obtaining ownership of the home, which might include the fees for the application to the lender, underwriting and locking in the mortgage rate.
  • How they can sneak up on you: With the closing process, there are various terms and conditions that you will have to follow. First-time homebuyers and even seasoned homeowners might get caught up in the language used by legal documents, which might confuse them about all the fees they might pay.
  • How to avoid them: Hire a legal expert in real estate matters. At closing, consider bringing in a real estate lawyer to go over the documents you will have to sign and ask them any questions about these fees. You could also negotiate to bring down the cost of fees if you believe they are excessive.